Tom Davies' blog on student life, economics, education etc.

Archive for the tag “high-yield”

BRIEF: Pick a recent new issue of corporate debt and write a news report about its announcement. Make clear who the borrower is and at what interest rate; if possible say what the borrower intends to use the funds for. Talk about the way the market has been performing. 400 words. Time: 2.5 hours including research

The deal consisted of five senior notes. Four tranches, with maturities of 5.5, 6.5, 7.5, and 8.5 years were issued with a value of $1.25bn each. The remaining tranche, worth $600m, has a maturity of 9.5-years.

All securities opened sturdily with only the 9.5-year note pricing slightly below par. The yield-to-maturity for these bonds were 6.033%, 6.632%, 7.128%, 6.541% and 6.887% respectively. Moody’s rated the bonds at Ba3, three grades below investment standard.

The company sweetened the deal by offering a substantial 50 basis point new issue concession (this is the additional yield provided by new debt over the secondary market yield for the same security). By comparison, T-Mobile’s $500m transaction in August only offered a 25-30 basis point concession.

Although the issue performed strongly, growing takeover speculation dampened demand for the securities, according to a telecoms specialist at an asset management firm: “DT has always indicated they have been reluctantly involved in T-Mobile and they will continue to disengage as fast as they can.”

Dish, the satellite provider, and Sprint are leading candidates to acquire the telecoms company, but this would signal bad news for bondholders.

“If they do sell T-Mobile, that might not be a good event for any bonds that were bought above par, given the change of control language,” said the telecoms specialist.

A takeover is likely to increase the company’s debt burden, causing the value of existing bonds to fall. COC’s (change of control clauses) would allow the bondholder to sell the security back to the issuer at a set price. In this case, T-Mobile’s COC allows the holder to return the bond at a price of 101 in the event that the debt is downgraded by two ratings agencies.

The deal accounts for half the liability taken on by Deutsche Telekom (DT), T-Mobile’s parent company, when it acquired a 74% stake in pay-as-you-go carrier MetroPCS Communications. The remaining debt held by T-Mobile, which is resettable, is unlikely to be resold according to CreditSights.

Firms have been keen to capitalize on low interest rates by issuing debt, but the Fed is widely expected to taper its $85bn in asset purchases by 2014. This is the latest in a string of high value deals to hit the market in recent months. Earlier this year, Apple sold $17bn worth of bonds but this was surpassed last month by Verizon’s $49bn issue, the largest sale of corporate debt in history.

Disclaimer

The intention of the articles featured on this blog is entirely satirical. The views expressed are not based on fact and do not necessarily represent the opinions of the writer or any other party. It is not my intention to offend, defame or libel. I do not take any responsibility for the comments made on this blog by others. Please don’t sue me.